Centre eyes second sell-off in IndianOil

The Finance Ministry has initiated inter-ministerial consultations for dilution of a 10 per cent government stake in Indian Oil Corporation Ltd.

This will be the second sell-off in IndianOil in a year (the last one was in March 2014). Currently, the Government owns 68.57 per cent of the company.

“The Department of Disinvestment has sought comments from various ministries by January 27. After due consultations, it will be taken to the Cabinet Committee on Economic Affairs (CCEA) for a final decision,” a senior government official told Business Line .

The effort is to complete the process in the current fiscal year itself, the official added. Based on the closing price on Wednesday, the Government can get over ₹8,000 crore by selling around 24.28 crore shares in IndianOil.

On Wednesday, the company’s stock closed 1.19 per cent lower at ₹335.85, on the BSE.

Completing the divestment this fiscal is crucial as the mop up via this route is well below target. Until now, the Centre has managed to raise a little over ₹1,700 crore against the planned ₹43,125 crore.

Though two big-ticket sales —ONGC and Coal India — have been approved, the process is stuck due to lack of policy clarity.

ONGC’s disinvestment programme is stuck due to an unclear subsidy-sharing formula. The explorer offers discounts to public sector marketing companies on its crude oil and petroleum products.

With a steep drop in international crude oil prices, the producer finds itself in a peculiar position, where the discount it offers is higher than the actual price.

ONGC’s produce is benchmarked to the Indian crude basket, which on January 13 stood at $43.48 a barrel. It has to give a discount of $56 a barrel on the crude price. The Government had initially intended offloading its stake in ONGC this month, but neither the company nor the Ministry of Petroleum and Natural Gas has heard anything as yet.

The issue of subsidy-sharing will need to be clarified even for the IndianOil disinvestment. The oil marketer continues to sell LPG and kerosene at government-controlled prices. Though the Government has decontrolled diesel and petrol prices, the fear of State intervention, if crude oil prices surge again, remains, an analyst said, adding a fine example is the recent Government intervention in capping the over-recovery through excise duty hikes (twice in a month).

The Government, however, has repeatedly said it will complete the divestment process in ONGC and Coal India by March 31.

Once the CCEA clears it, the divestment will be carried out through the ‘offer for sale (OFS) route, which requires little paperwork and can be completed within seven days.

Recently, market regulator SEBI permitted reservation of a minimum 10 per cent for retail investors besides the discount. This was used in the disinvestment of Steel Authority of India and will be used in future sell-offs, too. Last year, too, the Finance Ministry had moved a proposal for a stake dilution in IndianOil through the OFS mechanism. But the nodal Ministry had opposed it saying shares should not be sold through OFS as the price did not reflect the right valuation of the company. Finally, it was decided to sell the stake through block deals.

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